The Biggest Myth About Emerging Markets

As I pointed out on Friday, stocks in the most popular emerging
markets are getting clobbered. Truthfully, the entire emerging
markets space is taking it on the chin right now. Not just Brazil -
but Russia, India and China, too.

Case in point: The MSCI Emerging Markets Index is down 10.7%
this year, compared to a 13.2% rise for the S&P 500 Index.

The disconnect isn't accidental, either. As Ruchir Sharma, Head
of Emerging Markets at
Morgan Stanley
(
MS
), shared in our recent interview, the fundamentals in the United
States actually outclass much of the world. (Shocker, right?)

Nevertheless, I'm already starting to hear chatter that the
unfolding crisis in emerging markets is going to undercut the bull
market here in the United States.

Some even liken the impact of emerging markets on the rest of
the world to a worm spreading through bad apples.

Hogwash! And in honor of
Myth-Busting Mondays
, I'm going to prove it.

Remember theAlamo Euro Crisis!

You'll recall, in late 2011 and much of 2012, investors worried
that the crisis in Europe would sabotage the rally in the United
States.

Such a belief wasn't without merit, either.

As I shared at the time, U.S. companies rely heavily on
international sales.

According to Standard & Poor's Howard Silverblatt, foreign
sales recently accounted for 46% of total revenue for S&P 500
companies. Of that, 29% came from Europe. That works out to about
$0.14 out of every dollar in sales coming from Europe.

That's significant enough that any slowdown in Europe promises
to create a ripple effect in the United States. Indeed, this time
last year, headlines like this one from
Reuters
cropped up everywhere: "U.S. Companies Blame Europe for Earnings
Warnings."

Did the euro crisis spell disaster for the bull market in U.S.
stocks, though? Not at all.

But why bring any of this up? Because it's necessary to put the
impact of a slowdown in emerging markets on U.S. companies into
perspective.

Whereas Europe accounts for about 14% of sales for S&P 500
companies, emerging markets only account for about 5%, according to
Goldman Sachs'
(
GS
) David Kostin.

And emerging markets account for just 6% of total profits for
U.S. economies. That figure is trending lower, too. Take a
look:

If you're still reluctant to believe that the United States can
escape the slowdown in emerging markets (with profits intact),
there is a solution.

Start looking for companies that derive the overwhelming
majority (or all) of their sales from the United States.

Believe it or not, blue chips like
McDonald's
(
MCD
) generate more than 50% of their sales from overseas.

However, an analysis by Bespoke Investment Group reveals that
companies with mostly domestic sales exposure are outperforming
companies with more than 50% of sales coming from overseas - by an
average of five full percentage points this year (16% versus
11%).

Bottom line: The natural tendency is to assume that U.S.
companies rely much more heavily on foreign sales than they really
do. Now you know the truth. And there's absolutely no reason to
freak out about emerging markets sabotaging the bull market in the
United States.